SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal
Year Ended February 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______.
0-17793
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(Commission File Number)
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
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(Exact name of registrant as specified in its governing instruments)
Delaware 13-3481443
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(State or other jurisdiction of (I.R.S. Employer
organization) Identification No.)
Wilder Richman Historic Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 869-0900
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Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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The aggregate sales price of the units of limited partnership interest held by
non-affiliates of the Registrant is $19,280,000. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated May 13, 1988 and filed pursuant to Rule
424(b)(iii) under the Securities Act of 1933, is incorporated by reference into
Parts I, II and III of this Annual Report on Form 10-K.
PART I
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Item 1. Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited partnership
which was formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987. The general partner of the Partnership is Wilder Richman
Historic Corporation, a Delaware corporation (the "General Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership
interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon
Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates
III (Phase Three), Limited Partnership, each of which is a New Jersey limited
partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III,"
respectively, and collectively the "Operating Partnerships"). Each Operating
Partnership owns one phase ("Phase") of an aggregate 433-unit residential
apartment complex (the "Complex") located in Jersey City, New Jersey, that
consists of buildings designated as certified historic structures by the U.S.
Department of the Interior. The Operating Partnerships have constructed,
substantially rehabilitated and are operating the Complex. The rehabilitation of
the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990.
The general partner of the Operating Partnerships is Dixon Venture Corp. (the
"Operating General Partner"), which is not an affiliate of the Partnership or
WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the
"Prospectus"), the Partnership offered $19,280,000 of units of limited
partnership interest in the Partnership (the "Units") at an offering price of
$24,100 per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form S-11 (Registration No. 33-19646).
The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July 15,
1988. At such closing, 800 Units were sold, representing $19,280,000 in gross
proceeds. After payment of $674,800 of organization and offering expenses,
$674,800 in an origination fee and $1,349,600 of selling commissions, the net
proceeds available for investment were $16,580,800. Of such net proceeds,
$16,388,000 was allocated to the investment in the Operating Partnerships, which
included investments in guaranteed investment contracts. The remainder of
$192,800 was designated as working capital to be used for operating expenses of
the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited
partnership interest in each of the Operating Partnerships. A presentation of
information regarding industry segments is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole. See
Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 28, 2003, Registrant had working capital reserves of
approximately $85,000, which were substantially invested in interest-bearing
deposits. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition
Information regarding competition, general risks, tax risks and partnership
risks is set forth under the heading "RISK FACTORS" at pages 37 - 57 of the
Prospectus.
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate
of the General Partner employs individuals who perform accounting, secretarial,
transfer and other services on behalf of Registrant as are necessary in the
ordinary course of business. Such individuals also perform similar services for
other affiliates of the General Partner.
2
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous Revenue
Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus Budget
Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus Budget
Reconciliation Act of 1993, Uruguay Round Agreements Act, Tax and Trade Relief
Extension Act of 1998, Tax and Trade Relief Extension Act of 1999, Community
Renewal Tax Relief Act of 2000, Economic Growth and Tax Relief Reconciliation
Act of 2001 and Job Creation and Worker Assistance Act of 2002 (collectively the
"Tax Acts")
Registrant is organized as a limited partnership and is a pass through tax
entity which does not, itself, pay Federal income tax. However, the partners of
Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investment. Registrant does not
anticipate that the Tax Acts will currently have a material adverse impact on
Registrant's business operations, capital resources and plans or liquidity.
Item 2. Properties
The Complex consists of approximately 34 historic mill buildings built
between 1847 and 1932, all of which are certified historic structures that have
been converted and substantially rehabilitated into a 433 unit luxury apartment
complex that has received financing exempt from Federal income taxation under
Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt
financing, the Operating Partnerships are required to rent at least 15% of the
dwelling units ("D.U.'s") in the Complex to individuals or families of low or
moderate income as determined under such Code Section, currently based on their
income not exceeding 80% of the median income for the area as determined by the
United States Department of Housing and Urban Development ("HUD"). These income
limits are subject to increases pursuant to HUD guidelines. In the Complex, 68
studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental
to low or moderate income persons. There are no rent ceilings on those D.U.'s
set aside for low or moderate income persons. Because such tax exempt financing
consists of bonds sold in 1985, the 80% of median income limit is not required
to be adjusted based on family size as would be required under the Tax Reform
Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In
addition, one new five-story building, approximately 20 feet by 50 feet, was
built on the site. The Complex is located in the Dixon Crucible Redevelopment
Area, an area so designated pursuant to a redevelopment plan adopted in
September 1983 by ordinance of the City of Jersey City. The actual development
entails three Phases with each Phase owned by a separate New Jersey limited
partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase
I consists of seven industrial buildings which have been rehabilitated to
provide 134 D.U.'s, 55 underground and 77 surface parking spaces and
approximately 1,550 square feet of commercial space. Phase II consists of 11
industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62
underground and 124 surface parking spaces. Phase III consists of four
industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35
underground and 73 surface parking spaces and approximately 2,230 square feet of
commercial space.
The Complex features gardens, elevated walkways and brick paved walkways.
The Complex also has its own electronic security system and a free shuttle
service to the Grove Street PATH station is being provided. In addition, the
residents of the Complex have access to a private fitness facility. The
Complex's commercial space is designated for retail stores and/or professional
offices.
As of December 31, 2002 and 2001, the occupancy and rental rates were as
follows:
December 31, 2002 December 31, 2001
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Occupancy Rate 98% 98%
Monthly Rental Rates:
Studio $ 609 - $1,095 $ 628 - $1,117
One-Bedroom $ 730 - $1,752 $ 730 - $1,807
Two-Bedroom $ 1,213 - $2,284 $ 1,365 - $2,284
Three-Bedroom $ 1,870 - $2,073 $ 1,928 - $2,647
The rental rates reflect significant ranges because the apartments vary as
to size and floor plans (i.e., square footage, duplex, triplex, penthouse) and
due to the low-moderate tenant income restrictions for 15% to 20% of the D.U.'s
resulting from the tax-exempt financing described above.
3
Item 3. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of
Registrant during the fourth quarter of the fiscal year covered by this report.
4
PART II
Item 5. Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units and
Registrant does not anticipate that such a market will develop.
b) Holders
As of February 28, 2003, there were approximately 733 record holders of
Units holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash
available for distribution, if any, be distributed annually to the partners in
specified proportions. As a result of the mortgage modification on June 11,
1992, certain cash flow restrictions were placed on the Operating Partnerships.
Such restrictions no longer apply as a result of the refinancing in April 2001.
See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 to the Dixon Mills Financial Statements
included herein.
Item 6. Selected Financial Data
Year Ended
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February February February February February
28, 2003 28, 2002 28, 2001 29, 2000 28, 1999
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(Restated) (Restated) (Restated) (Restated)
Total revenues
(Interest income) $ 2,115 $ 4,674 $ 11,890 $ 54,009 $ 52,660
Equity in income (loss) of
investment in Operating
Partnerships $ 851,780 $ 386,617 $ 36,081(b) $ 64,727 $ (396,922)(a)
Net income (loss) $ 695,620 $ 342,738 $ 9,371 $ 74,714 $ (383,145)
Net income (loss) per unit of
limited partnership interest $ 861 $ 424 $ 12 $ 92 $ (474)
At year end:
Total assets $ 2,571,508 $ 1,753,515 $ 1,404,776 $ 1,390,734 $ 2,257,185
(a) Includes extraordinary loss of $162,350 in connection with litigation
settlement
(b) Includes extraordinary loss of $115,942 in connection with refinancing of
mortgages of Operating Partnerships. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The operating results of the Complex for 2002 were comparable to 2001.
During 1992, the mortgages of the Operating Partnerships were modified,
resulting in an interest rate decrease from approximately 9.6% to approximately
6.74%, thereby improving the financial viability of the Complex. The Operating
Partnerships again refinanced their respective outstanding mortgage liabilities
as of April 28, 2000 (the "Refinancing"). The total new indebtedness in the
amount of $28,600,000, for a term of 30 years, was provided by (a) variable-rate
tax-exempt bonds in the amount of $26,435,000 and (b) variable-rate taxable
bonds in the amount of $2,165,000. The initial interest rates on the tax-exempt
and taxable bonds were 5.1% and 6.15%, respectively. The Operating Partnerships
purchased an interest cap, which would limit the interest rates to 6.97% for
five years on the tax-exempt portion, and 9.15% for five and one-half years on
the taxable portion. Proceeds from the new bond issue were used to create a
reserve for capital improvements of approximately $1,365,000. In addition, the
balance in the replacement reserve at the date of the Refinancing (approximately
$903,000) was transferred to the capital improvement reserve (collectively, the
"Capital Improvements Escrow").
As a result of the reduction of the mortgage interest rate, the
Operating Partnerships have generated greater cash flow. However, the Operating
Partnerships' ability to make distributions will depend on the level of interest
rates and future operating results of the Complex, which will be extremely
dependent on competition, market conditions and needed capital improvements and
repairs. Accordingly, there can be no assurance as to whether or not the
Partnership may be able to make distributions, nor the timing or amount of any
potential distributions to Limited Partners. The Operating General Partner and
the General Partner plan to periodically assess the possible resumption of cash
flow distributions, based on the results of operations, the physical condition
of the Property (see discussion below), the then current interest rates, and
local market conditions, among other things. To the extent cash flow is
generated by the Operating Partnerships, such cash flow may be retained by the
Operating Partnerships or may be distributed at the discretion of management,
pursuant to the terms of the limited partnership agreements of the Operating
Partnerships. To the extent there are net proceeds from a future sale or
refinancing of the Complex, the Partnership will receive 100% of any such
proceeds available for distribution until the 7% cumulative preferred
distribution has been achieved. Through December 2002, the cumulative preferred
distribution is approximately $16,266,000.
The Property reported cash flow for the year ended December 31, 2002
(see Results of Operations, below) and the Operating Partnerships' cash and cash
equivalents and investments in bonds as of December 31, 2002 have increased by
approximately $3,809,000 as compared to December 31, 2001, while accounts
payable and accrued expenses have increased by approximately $184,000. The
Capital Improvement Escrow and replacement reserve accounts, which are
controlled by the lender, are approximately $223,000 and $181,000 respectively
as of December 31, 2002. The principal reserve, which is controlled by the
lender for purposes of amortizing the debt, is approximately $886,000 as of
December 31, 2002. Each of the foregoing reserves and escrows are reflected in
the Operating Partnerships' balance sheet under the caption mortgage escrow
deposits. Because the improvements contemplated at the time of Refinancing were
primarily funded from operating cash through December 31, 2001, the Operating
General Partner requested to have the funds transferred to the operating account
from the Capital Improvements Escrow. Accordingly, approximately $1,919,000 was
released from the capital improvements escrow during 2002. During the year ended
February 28, 2003, the Partnership's investment in Operating Partnerships
increased by $851,780 as a result of the equity in income of investment in
Operating Partnerships. The annual investor service fees are payable from the
operations of the Operating Partnerships and from reserves of the Partnership.
As of February 28, 2003, due to affiliates reflected on the Partnership's
balance sheet includes approximately $222,000 of accrued investor service fees.
Because the rehabilitation of the Property was completed more than ten
years ago, management has been addressing the need for extensive capital
improvements. As a result of the Refinancing, significant capital improvements
were scheduled for the Complex throughout 2000 and 2001. The improvements that
were contemplated as part of the Refinancing include roof replacement,
replacement of the fire/smoke alarm system, elevator repairs, new entry doors
and other repairs throughout the Complex. In addition, the Operating General
Partner has identified other potential significant capital improvements and
repairs throughout the Complex, which it intends to address over the next few
years. Such capital improvements and repairs would significantly reduce the
Operating Partnerships' cash flow available for distribution. Furthermore, the
local rental market has softened due to the recent economic recession and the
events of September 11, 2001; as a result, the local competition has reduced
their rental rates. Management has implemented rental reductions and concessions
in order to maintain its position in the market, which will adversely affect
cash flow; such affect may be offset (or exacerbated) by changes in the low
floater mortgage interest rates. Depending on market conditions, rents may need
to be further adjusted.
The Partnership agreed with the Operating General Partner to hire a
national brokerage and marketing firm to privately solicit offers from major
apartment owners to purchase the Property (on a confidential basis) in order to
determine the current market value of the Property. Approximately 30 companies
with experience in real estate investments in this area were approached. Two of
those solicitations
6
resulted in initial offers to purchase the Property, which are non-binding and
subject to due diligence. Because of the age of the Property and necessary
capital repairs and improvements already identified, the Operating General
Partner believes it is likely the offers would be reduced after due diligence
investigations, and there is no guarantee that either of the offers would result
in a sale of the Property being completed.
Under the Partnership Agreement of the Partnership, a sale of the Property
would require the consent of a majority in interest of the Unit Holders.
Accordingly, the Partnership is preparing Proxy materials by which Unit Holders
will be asked to vote as to whether or not they want to pursue a sale of the
Property. The general partner is preparing an estimate of the amount that would
be available to Unit Holders if a sale were to occur at or near the prices
currently offered based on the Partnership's payables, cash reserves, estimated
closing costs and sales commissions. The estimated net sales proceeds and an
estimate of a Unit Holder's federal tax results which would be triggered by a
sale will be included in the Proxy materials.
In January 2003, the Partnership announced that the Operating General
Partner anticipated making a cash distribution in 2003 of approximately
$1,071,000, or approximately $1,325 per Unit because the Property had
accumulated approximately $7.2 million in cash and restricted deposits,
primarily as a result of the low floater interest rate on the Property's
mortgages. The Operating General Partner has identified repairs and other
improvements estimated to cost approximately $8.5 million over the next five
years. The Operating General Partner anticipates spending approximately $2.5
million in 2003 for capital needs, including structural work on the pump house
building, roof and balcony repairs, and steel restoration. The Operating General
Partner believes that other improvements, whose timing may be discretionary but
which may be important to remain competitive in the rental market, should be
made over time and include kitchen and bath renovations, new appliances, and
replacement of doors and windows.
For the purpose of determining an amount to distribute, the Operating
General Partner took into account what the cash flow would have been if the
Property's mortgage interest rates were 5% (the then current FNMA underwriting
rate) as opposed to the favorable low floater rates of the Property's mortgages.
The Operating General Partner's objective has been to build up reserves to a
level sufficient to reasonably offset the potential adverse impact of future
increases in the low floater rates in addition to other contingencies, including
capital improvements and potential significant increases in real estate taxes.
The Operating General Partner intends to take into account, among other factors,
a similar analysis when considering making future annual distributions.
Results of Operations
The Partnership's operating results are dependent upon the operating
results of the Operating Partnerships and are significantly impacted by the
policies of the Operating Partnerships. Registrant accounts for its investment
in Operating Partnerships in accordance with the equity method of accounting,
under which the investment is carried at cost and is adjusted for Registrant's
share of the Operating Partnerships' results of operations and by any cash
distributions received. Equity in loss of each investment in Operating
Partnership allocated to Registrant is recognized to the extent of Registrant's
investment balance in each Operating Partnership. Any equity in loss in excess
of Registrant's investment balance in an Operating Partnership is allocated to
other partners' capital in each such Operating Partnership. As a result, the
equity in loss of investment in Operating Partnerships is expected to decrease
as Registrant's investment balances in the respective Operating Partnerships
become zero.
Cumulative losses and cash distributions in excess of investment in
Operating Partnerships may result from a variety of circumstances, including the
Operating Partnerships' accounting policies, debt structure and operating
deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of the Operating Partnerships.
Year Ended February 28, 2003
During the year ended February 28, 2003 the Partnership earned interest of
approximately $2,100 which was lower than the previous fiscal period mainly as a
result of the reduction in interest rates. The Partnership's operating expenses
were higher compared to the year ended February 28, 2002 as a result of a new
filing fee charged to partnerships in the State of New Jersey. Registrant's
equity in income in Operating Partnerships does not fully include a 99%
allocation of the income reported by the Operating Partnerships due to the
nonrecognition of previous years' losses in excess of Registrant's investment in
Dixon Mills I in accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 2002 in the amount of approximately $966,000, inclusive of
depreciation and amortization of approximately $1,549,000. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $1,598,000 during
7
2002, which considers payments to the principal reserve fund under the mortgages
(approximately $367,000), net deposits to the replacement reserve (approximately
$76,000) and capital expenditures (approximately $555,000), but does not include
costs incurred in connection with the planned capital improvements to be covered
by the Capital Improvements Escrow (discussed above) and interest earned on the
Capital Improvements Escrow (approximately $34,000). The Operating Partnerships'
results of operations for the year ended December 31, 2002 were significantly
enhanced by the Refinancing, as interest expense declined by approximately
$359,000 as compared to the year ended December 31, 2001. The interest rates on
the low floater mortgages began January 2002 at 1.24% and 2.14%, respectively,
and ended the year at 1.15% and 1.42% , respectively. The average interest rates
for the year were approximately 1.27% and 1.86%, respectively. The Operating
Partnerships utilized approximately $115,000 from the replacement reserve during
2002.
Although the results of operations have continued to generate cash
flow (primarily due to reduced interest expenses which exceeded the reduction in
rental income for the year), management continues to examine methods to maintain
occupancy rates by adjusting rental rates (including providing rental
concessions) and by closely managing operating costs. As of December 31, 2002,
the occupancy rate was approximately 98%. The future operating results of the
Complex will be extremely dependent on market, the regional economy and the low
floater interest rates (which were very favorable in 2002), and therefore may be
subject to significant volatility. There can be no assurance that the Operating
Partnerships will continue to generate cash flow at the level reported in 2002.
Year Ended February 28, 2002
During the year ended February 28, 2002 the Partnership earned interest of
approximately $4,700 which was lower than the previous fiscal period mainly as a
result of the reduction in interest rates. The Partnership's operating expenses
were slightly higher compared to the year ended February 28, 2001. Registrant's
equity in income in Operating Partnerships does not include a 99% allocation of
the income reported by the Operating Partnerships due to the nonrecognition of
previous years' losses in excess of Registrant's investment in Dixon Mills I and
II in accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 2001(as restated) in the amount of approximately $831,000,
inclusive of depreciation and amortization of approximately $1,524,000. The
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $1,751,000 during
2001, which considers payments to the principal reserve fund under the mortgages
(approximately $336,000), net deposits to the replacement reserve (approximately
$76,000) and capital expenditures (approximately $150,000), but does not include
costs incurred in connection with the planned capital improvements to be covered
by the Capital Improvements Escrow (discussed above) and interest earned on the
Capital Improvements Escrow (approximately $39,000). The Operating Partnerships'
results of operations include the settlement of previously pending litigation
matters in the aggregate amount of approximately $412,000, including plaintiffs'
legal fees, plus the Operating Partnerships' legal fees. The Operating
Partnerships' results of operations for the year ended December 31, 2001 were
significantly enhanced by the Refinancing, as interest expense on the mortgage
declined by approximately $524,000 as compared to the year ended December 31,
2000. The interest rates on the low floater mortgages began January 2001 at
3.95% and 6.60, respectively, and ended the year at 1.24% and 2.14%,
respectively. The average interest rates for the year were approximately 2.9%
and 4.5%, respectively. The Operating Partnerships did not utilize any
replacement reserves during 2001. As of December 31, 2001, the occupancy rate
was approximately 98%.
Year Ended February 28, 2001
During the year ended February 28, 2001 the Partnership earned interest of
approximately $12,000 which was lower than the previous fiscal period as a
result of the distribution to limited partners at the end of the prior fiscal
period resulting in lower average cash balances. The Partnership's operating
expenses were comparable to the year ended February 29, 2000. Registrant's
equity in income in Operating Partnerships does not include a 99% allocation of
the income reported by the Operating Partnerships due to the nonrecognition of
previous years' losses in excess of Registrant's investment in Dixon Mills I and
II in accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 2000 (as restated) in the amount of approximately $527,000,
inclusive of depreciation and amortization of approximately $1,420,000. The
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $1,684,000 during
2000, which considers principal amortization under the mortgages (approximately
$278,000) and net deposits to the replacement reserve (approximately $82,000),
but does not consider the planned capital improvements. Occupancy remained
consistently high throughout 2000, while management steadily increased rental
rates, resulting in an increase in rental revenues of approximately $524,000
compared to 1999. The Operating Partnerships did not utilize any replacement
reserves during 2000. As of December 31, 2000, the occupancy rate was
approximately 98%.
8
Inflation
Inflation is not expected to have a material adverse impact on Registrant's
revenues during its period of equity ownership in the Operating Partnerships
except as discussed below under Quantitative and Qualitative Disclosures About
Market Risk.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. A summary of significant accounting
policies is provided in Note 2 to the financial statements. The following
section is a summary of certain aspects of those accounting policies that may
require subjective or complex judgments and are most important to the portrayal
of Registrant's financial condition and results of operations. Registrant
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the financial statements.
o Registrant accounts for its investment in Operating Partnerships in
accordance with the equity method of accounting since Registrant
cannot control the operations of an Operating Partnerships.
Recent Accounting Pronouncements Not Yet Adopted
During 2002 the financial accounting standards board ("FASB") issued
the following statements:
FASB 145 - Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections.
FASB 146 - Accounting for Costs Associated with Exit or Disposal
Activities.
FASB 147 - Acquisitions of Certain Financial Institutions - an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9.
FASB 148 - Accounting for Stock-Based Compensation - Transition
and Disclosure - an amendment of FASB Statement No. 123.
These statements do not have any impact on the Partnership's financial
position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership has market risk sensitivity with regard to financial
instruments concerning potential interest rate fluctuations in connection with
the low floater rates associated with the Operating Partnerships' mortgages as
refinanced as of April 28, 2000. Although an interest rate cap has been
purchased, a change in the low-floater interest rates of .25% would have an
annualized impact of approximately $70,000 on the Operating Partnerships'
results of operations.
Item 8. Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is submitted
as part of Item 14(a) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
9
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As
described below, its principals have had significant experience in various
facets of the real estate business including the development of multi-family
rental housing. The directors and officers of the General Partner, who have
served as such since inception, are as follows:
Name Age Office
---- --- ------
Richard Paul Richman 55 President and Director
Robert H. Wilder, Jr. 57 Executive Vice President, Assistant
Secretary, Treasurer and Director
Gina S. Dodge 47 Secretary
Richard Paul Richman, 55 years old, is President and Director of WRHC. Mr.
Richman graduated from the Columbia University Law School with a Juris Doctor
degree, the Columbia University Graduate School of Business Administration with
a Master of Business Administration degree and Syracuse University with a
Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of
extensive experience in both the development and management of residential
properties. From 1973 until 1979, Mr. Richman practiced corporate law in New
York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of
Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer
in connection with the development, syndication and tax issues relating to real
estate. Since 1988, Mr. Richman has been the President and majority stockholder
of The Richman Group, Inc. and is the managing partner of The Richman Group of
Connecticut, L.L.C. In recent years, Mr. Richman has devoted full time to the
syndication and development of real estate. Mr. Richman was a vice president and
shareholder of Related Housing Companies Incorporated, New York, New York from
1978 until mid-1979 with responsibility for that company's project acquisition
and syndication activities. Mr. Richman has been a member of the National
Advisory Board of the Housing and Development Reporter, a bi-weekly publication
of the Bureau of National Affairs, Inc., a frequent speaker on real estate
syndication, and a member of the New York State Historic Credit Task Force, the
National Leased Housing Association, the Coalition to Preserve the Low-Income
Tax Credit and the Minority Developer Assistance Corporation (which was
established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 57 years old, is Executive Vice President, Assistant
Secretary, Treasurer and Director of WRHC. Mr. Wilder graduated from the
University of Michigan with a Bachelor of Arts degree in Economics and from the
Columbia University Graduate School of Business with a Master of Business
Administration degree. After graduation in 1968, Mr. Wilder joined James D.
Landauer Associates, Inc., a national real estate consulting firm, where his
account responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New
York and Connecticut.
Gina S. Dodge, 47 years old, is Secretary of WRHC. Ms. Dodge, a Vice
President and Secretary of The Richman Group, Inc. and Secretary of Wilder
Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the
President, and has been the Director of Investor Services with responsibility
for communications with investors since 1986.
10
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or partners
of the General Partner any direct compensation, and no such compensation was
paid during the year ended February 28, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record of
more than 5% of the outstanding Units as of February 28, 2003.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special
Limited Partner are set forth under the heading "PROFITS, LOSSES and
DISTRIBUTIONS" at pages 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive
certain compensation, fees and reimbursement of expenses during the offering,
operational and termination or refinancing stages of the Partnership.
WRMC, Inc. ("WRMC"), an affiliate of the General Partner, is a
co-management agent of the Complex. In connection with these services, WRMC
earned and received management fees of $119,074 in 2002.
Richman Asset Management, Inc. an affiliate of the General Partner, earned
compensation in the amount of $100,693 in 2003 for its performance in connection
with investor services for the Partnership and the Operating Partnerships and
received payment of $45,000.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the
foregoing was indebted to Registrant at any time during the years ended February
28, 2003 and 2002.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, Registrant's
Chief Executive Officer and Chief Financial Officer carried out an
evaluation of the effectiveness of Registrant's "disclosure controls
and procedures" as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation,
Registrant's Chief Executive Officer and Chief Financial Officer have
concluded that as of the date of the evaluation, Registrant's
disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to Registrant
required to be included in Registrant's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in Registrant's internal controls or
in other factors that could significantly affect Registrant's internal
controls subsequent to the date of that evaluation.
11
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Financial Statements
(i) The list of Financial Statements of Registrant appears on page
F-1.
(ii) The list of Financial Statements of the Operating Partnerships
appears on page F-15.
(3) Exhibits:
(3A) Certificate of Limited Partnership of Wilder Richman Historic
Properties II, L.P., as filed with the Secretary of State of
Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman
Historic Properties II, L.P. (attached to Prospectus as Exhibit
A);
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit
B);
(10A) Previously executed and filed Certificate of Limited Partnership
and Amended and Restated Certificate of Limited Partnership of (x)
Dixon Mill Associates I (Phase One), Limited Partnership, (y)
Dixon Mill Associates II (Phase Two), Limited Partnership and (z)
Dixon Mill Associates III (Phase Three), Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of Limited
Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited
Partnership Amended and Restated Agreement and Certificate
of Limited Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of
Environmental Protection ("NJDEP") and NJDEP Non-Applicability
Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick
Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic Properties
II, L.P., Wilder Richman Historic Corporation, Shearson Lehman
Hutton Inc. and FirsTier Bank, N.A., as escrow agent;**
12
(10K) Form of Financial Development Consulting Agreement between Wilder
Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman Historic
Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among
Wilder Richman Historic Properties II, L.P., the Dixon Mill
Partnerships and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as
Assignor, and Wilder Richman Historic Properties II, L.P., as
Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman Historic
Properties II, L.P. and the Dixon Mill Partnerships, as to The
Dixon Venture's agreement to bear all costs of compliance with the
New Jersey Environmental Cleanup
Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
(99.1) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
Richard Paul Richman - Chief Executive Officer of Wilder Richman
Historic Corp., General Partner of the Company
(99.2) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Neal
Ludeke - Chief Financial Officer of Wilder Richman Historic Corp.,
General Partner of the Company.
* Incorporated by Reference to Registrant's Form S-11 Registration Statement
as filed with the Securities and Exchange Commission on January 15, 1988.
** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11
Registration Statement as filed with the Securities and Exchange Commission
on May 9, 1988.
*** Submitted as exhibit to Form 10-K for the fiscal year ended February 29,
1992.
**** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 17th day of June, 2003.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
/s/ Richard Paul Richman
--------------------------------------
Richard Paul Richman
President and Chief Executive Officer
/s/ Neal Ludeke
--------------------------------------
Neal Ludeke
Chief Financial Officer
14
CERTIFICATIONS
I, Richard Paul Richman, certify that:
1. I have reviewed this annual report on Form 10-K of Wilder Richman Historic
Properties II, L.P.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: June 17, 2003 By: /s/ Richard Paul Richman
-----------------------------------
Richard Paul Richman
Chief Executive Officer of
Wilder Richman Historic Corporation,
general partner of the Company
15
I, Neal Ludeke, certify that:
1. I have reviewed this annual report on Form 10-K of Wilder Richman Historic
Properties II, L.P.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 17, 2003 By: /s/ Neal Ludeke
---------------------------------
Neal Ludeke
Chief Financial Officer of
Wilder Richman Historic Corporation,
general partner of the Company
16
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 28, 2003, 2002 AND 2001
AND INDEPENDENT AUDITORS' REPORT
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 28, 2003, 2002 and 2001
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of partners' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-14
F-1
INDEPENDENT AUDITORS' REPORT
Partners
Wilder Richman Historic Properties II, L.P.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic
Properties II, L.P. as of February 28, 2003 and 2002, and the related statements
of operations, partners' equity and cash flows for the years ended February 28,
2003, 2002 and 2001. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wilder Richman Historic
Properties II, L.P. as of February 28, 2003 and 2002 and the results of its
operations, changes in partners' equity and cash flows for the years ended
February 28, 2003, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
April 18, 2003
New York, New York
F-2
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
February 28,
---------------------------
ASSETS 2003 2002
-------- ---------- ----------
(Restated)
INVESTMENT IN OPERATING PARTNERSHIPS
(Notes 2, 3, 4, 5 and 7) $2,475,099 $1,623,319
CASH AND CASH EQUIVALENTS (Note 2) 85,169 119,417
OTHER ASSETS 11,240 10,779
---------- ----------
$2,571,508 $1,753,515
========== ==========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Accrued expenses $ 10,000 $ 10,000
State of New Jersey filing fee 112,200
Due to related parties (Notes 4 and 7) 236,155 225,982
---------- ----------
358,355 235,982
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (Notes 5 and 7) 2,213,153 1,517,533
---------- ----------
$2,571,508 $1,753,515
========== ==========
See notes to financial statements
F-3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
Year Ended
-------------------------------------------------------
February 28
-------------------------------------------------------
2003 2002 2001
---------- ---------- ----------
(Restated) (Restated)
Revenues:
Interest income $ 2,115 $ 4,674 $ 11,890
Expenses:
Operating 46,075 48,553 38,600
State of New Jersey filing fee 112,200
--------- --------- ---------
Loss from operations (156,160) (43,879) (26,710)
--------- --------- ---------
Equity in income of Operating Partnerships
from operations 851,780 386,617 152,023
Extraordinary item - operating partnerships:
Write-off of unamortized deferred costs (115,942)
--------- --------- ---------
Net income from operating partnerships 851,780 386,617 36,081
--------- --------- ---------
NET INCOME $ 695,620 $ 342,738 $ 9,371
========= ========= =========
Net income attributable to:
Limited partners $ 688,664 $ 339,311 $ 9,277
General partner 6,956 3,427 94
--------- --------- ---------
$ 695,620 $ 342,738 $ 9,371
========= ========= =========
Net income per unit of limited
partnership interest $ 861 $ 424 $ 12
========= ========= =========
See notes to financial statements
F-4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED FEBRUARY 28, 2003, 2002 AND 2001
Limited General
Total partners partners
------------ ----------- -----------
Partners' equity (deficit), March 1, 2000
as previously reported $ 1,317,478 $ 1,460,972 $ (143,494)
Prior period adjustment (Note 7) (152,054) (150,533) (1,521)
----------- ----------- -----------
Partners' equity (deficit), March 1, 2000 (Restated) 1,165,424 1,310,439 (145,015)
Net income, year ended February 28, 2001 (Restated) 9,371 9,277 94
----------- ----------- -----------
Partners' equity (deficit), February 28, 2001 (Restated) 1,174,795 1,319,716 (144,921)
Net income, year ended February 28, 2002 (Restated) 342,738 339,311 3,427
----------- ----------- -----------
Partners equity (deficit), February 28, 2002 (Restated) 1,517,533 1,659,027 (141,494)
Net income, year ended February 28, 2003 695,620 688,664 6,956
----------- ----------- -----------
Partners equity (deficit), February 28, 2003 $ 2,213,153 $ 2,347,691 $ (134,538)
=========== =========== ===========
Limited partnership units outstanding at February 28,
2003, 2002, and 2001 800
===========
See notes to financial statements
F-5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
Year Ended
------------------------------------------------
February 28
------------------------------------------------
2003 2002 2001
--------- --------- ---------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 695,620 $ 342,738 $ 9,371
--------- --------- ---------
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of Operating Partnerships (851,780) (386,617) (36,081)
Changes in assets and liabilities:
Increase in other assets (461) (695) (96)
Increase in State of New Jersey filing fee 112,200
Increase in due to related parties 10,173 6,001 4,671
--------- --------- ---------
Total adjustments (729,868) (381,311) (31,506)
--------- --------- ---------
Net cash used in operating activities (34,248) (38,573) (22,135)
--------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (34,248) (38,573) (22,135)
CASH AND CASH EQUIVALENTS, beginning of year 119,417 157,990 180,125
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 85,169 $ 119,417 $ 157,990
========= ========= =========
See notes to financial statements
F-6
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
1. ORGANIZATION
Wilder Richman Historic Properties II, L.P. (the "Partnership") was
formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987 to acquire all of the limited partnership interest
in Dixon Mill Associates I (Phase One), Limited Partnership ("Dixon
Mill I"), Dixon Mill Associates II (Phase Two), Limited Partnership
("Dixon Mill II") and Dixon Mill Associates III (Phase Three),
Limited Partnership ("Dixon Mill III") (together herein referred to
as the "Operating Partnerships") which, collectively, constructed,
rehabilitated and own and operate a 433-unit apartment complex (the
"Complex") located in Jersey City, New Jersey. Wilder Richman
Historic Corporation (the "General Partner") is the General Partner
of the Partnership. The general partner of the Operating Partnerships
is Dixon Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective May 9,
1988, covering an offering (the "Offering") of 800 limited
partnership units at $24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners
representing 800 units of limited partnership interest (the
"Closing") for $19,280,000 in cash and notes. Immediately following
the Closing, the Partnership acquired a 99% limited partnership
interest in the Operating Partnerships. The Partnership acquired its
limited partnership interest for $16,388,000, which was paid in
installments.
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Partnership are prepared on the
accrual basis of accounting and include only those assets,
liabilities and results of operations related to the business of the
Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating
Partnerships on the equity method of accounting. Under the equity
method of accounting, the investment cost is adjusted by the
Partnership's share of the Operating Partnerships' results of
operations, which are limited to the respective investment balances
and by distributions received or accrued. The statements of
operations include the Partnership's equity in the earnings of the
Operating Partnerships on a calendar year basis.
Syndication Costs
Syndication costs of $2,639,200 were charged against limited
partners' capital upon the closing of the public offering, in
accordance with prevalent industry practice.
Income taxes
No provisions have been made for federal, state and local income
taxes, as they are the personal responsibility of the partners.
F-7
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and cash equivalents
For purposes of the statement of cash flows, the Partnership
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash and
cash equivalents are recorded at cost, which approximates fair value.
Fiscal year
The Partnership's fiscal year ends on the last day in February.
Use of estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Recently issued accounting standards
During 2002 the financial Accounting Standards Board ("FASB") issued
the following statements:
FASB 145 - Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections.
FASB 146 - Accounting for Costs Associated with Exit or Disposal
Activities.
FASB 147 - Acquisitions of Certain Financial Institutions - an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9.
FASB 148 - Accounting for Stock-Based Compensation - Transition
and Disclosure an amendment of FASB Statement No. 123.
These statements do not have any impact on the Partnerships'
financial position or results of operations.
F-8
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
3. INVESTMENTS IN OPERATING PARTNERSHIPS
The Investments in Operating Partnerships are as follows:
Dixon Dixon Dixon
Mill I Mill II Mill III Total
----------- ------------ ---------- ----------
Balance, March 1, 2000 (Restated) $ -- $ -- $1,200,621 $1,200,621
Equity in income of Operating Partnerships
(Restated) -- -- 36,081 36,081
---------- ---------- ---------- ----------
Balance, February 28, 2001 (Restated) -- -- 1,236,702 1,236,702
Equity in income of Operating Partnerships
(Restated) -- 124,162 262,455 386,617
---------- ---------- ---------- ----------
Balance, February 28, 2002 (Restated) -- 124,162 1,499,157 1,623,319
Equity in income of Operating Partnerships 260,787 385,255 205,738 851,780
---------- ---------- ---------- ----------
Balance, February 28, 2003 $ 260,787 $ 509,417 $1,704,895 $2,475,099
========== ========== ========== ==========
In accordance with the Operating Partnership Agreement, income and losses are to
be allocated 1% and 99% to the Operating General Partner and the Partnership,
respectively. Losses are not allocable to the Partnership if the losses reduce
its equity basis below zero. Losses in excess of the Partnership's investment
are allocated to the Operating General Partner. Accordingly, the Operating
Partnerships did not allocate 99% of the income reported in 2002, 2001, and 2000
to the Partnership due to the non-allocation of previous years' losses in excess
of the Partnership's investment.
F-9
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined balance sheets of the Operating Partnerships at December
31, 2002 and 2001 are shown below.
December 31,
-------------------------------
ASSETS 2002 2001
------ ------------ ------------
(Restated)
LAND $ 1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $18,240,199 and $16,721,255 in 2002 and
2001, respectively) 36,723,151 37,687,449
INVESTMENTS IN BONDS -- 1,348,817
CASH AND CASH EQUIVALENTS 7,176,990 2,018,814
DEFERRED COSTS 816,739 846,439
MORTGAGE ESCROW DEPOSITS 1,698,200 3,126,650
TENANT SECURITY DEPOSITS 790,510 870,216
OTHER ASSETS 16,495 146,898
------------ ------------
$ 48,372,558 $ 47,195,756
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgages payable $ 28,600,000 $ 28,600,000
Accounts payable and accrued expenses 261,050 77,031
Accrued interest payable 13,776 14,902
Tenants' security deposits payable 790,510 870,216
Due to general partner and affiliates 1,644,420 1,569,742
------------ ------------
31,309,756 31,131,891
------------ ------------
PARTNERS' EQUITY:
Partners' equity 17,062,802 16,096,363
Accumulated other comprehensive loss -- (32,498)
------------ ------------
17,062,802 16,063,865
------------ ------------
$ 48,372,558 $ 47,195,756
============ ============
F-10
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined statements of operations of the Operating Partnerships for
the years ended December 31, 2002, 2001 and 2000 are as follows:
Year Ended December 31,
----------------------------------------------------
2002 2001 2000
------------ ----------- ----------
(Restated) (Restated)
Revenues:
Rent $ 7,187,352 $ 7,423,632 $ 7,043,881
Interest 52,049 95,850 98,318
----------- ----------- -----------
7,239,401 7,519,482 7,142,199
----------- ----------- -----------
Expenses:
Administrative 1,327,299 1,520,163 1,145,605
Operating 2,676,074 2,581,957 2,472,392
Management fees 297,684 280,389 261,828
Interest 423,231 782,202 1,315,625
Depreciation and amortization 1,548,674 1,524,025 1,420,236
----------- ----------- -----------
6,272,962 6,688,736 6,615,686
----------- ----------- -----------
Income before extraordinary item 966,439 830,746 526,513
Extraordinary item:
Write-off of deferred costs -- -- (449,912)
----------- ----------- -----------
NET INCOME $ 966,439 $ 830,746 $ 76,601
=========== =========== ===========
Income before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 851,780 $ 386,617 $ 152,023
Extraordinary item -- -- (115,942)
----------- ----------- -----------
Net income allocated to Wilder Richman Historic
Properties II, L.P. $ 851,780 $ 386,617 $ 36,081
=========== =========== ===========
Income before extraordinary item allocated to
Dixon Venture Corp. $ 114,659 $ 444,129 $ 374,490
Extraordinary item -- -- (333,970)
----------- ----------- -----------
Net income allocated to Dixon Venture Corp. $ 114,659 $ 444,129 $ 40,520
=========== =========== ===========
F-11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
4. RELATED PARTY TRANSACTIONS
An annual investor services fee is payable to an affiliate of the General
Partner of the Partnership at a fee which is based upon a base amount of
$15,000 in 1992 from the Partnership and each of the Operating
Partnerships and is adjusted annually based on the Operating Partnerships
rental revenue (the "Investor Services Fees"). The Partnership incurred
Investor Services Fees of $25,173, $26,001 and $24,671 for the years
ended February 28, 2003, 2002, and 2001, respectively. At February 28,
2003 and 2002, due to related parties includes $221,954 and $211,781
respectively, of Investor Services Fees payable.
At February 28, 2003 and February 28, 2002, due to related parties
includes $9,846 due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the
properties owned by the Operating Partnerships. The affiliated management
agent earned management fees of $119,074 and $118,488 during the years
ended December 31, 2002 and 2001, respectively and $119,074 and $118,488
of such fees were paid in 2002 and 2001, respectively.
5. PARTNERS' EQUITY
The General Partner, the special limited partner and the investor limited
partners were allocated 1%, .01% and 98.99%, respectively, of income and
losses.
Distributions
Cash flow of the Partnership available annually for distribution after
payment of Partnership expenses will be distributed 98.99% to the
investor limited partners, .01% to the special limited partner and 1.00%
to the General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating
Partnerships, to the extent available (after the discharge of debts and
obligations of the Operating Partnerships and the Partnership, including
outstanding loans from partners or affiliates), will be distributed
generally as follows:
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to their adjusted
contributions;
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to the accrued cumulative,
non-compounded rate of 7% per annum (see preferred return below).
- The balance of adjusted capital contributions of the General Partner
and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners, .01% to
the special limited partner and 2.00% to the General Partner.
Preferred Return
Pursuant to the Partnership Agreement, the investor limited partners are
entitled to an annual preferred return in the amount of 7% of the
investor limited partners' adjusted contributions outstanding from time
to time, subject to cash flow available for distribution (including
lender restrictions). As of December 31, 2002, the cumulative preferred
amount in connection with the investment in the Operating Partnerships is
$16,266,336. Any cumulative shortfall not recovered out of future cash
flow distributions will be payable from sale of refinancing proceeds, to
the extent available.
F-12
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
6. TAXABLE LOSS
A reconciliation of the financial statement income of the Partnership for
the years ended February 28, 2003, 2002, and 2001 to the net loss as shown
on the tax returns for the years ended December 31, 2002, 2001 and 2000 is
as follows:
Year ended
December 31,
2002 2001 2000
----------- ----------- ----------
(Restated) (Restated)
Financial statement income for the years ended
February 28, 2003, 2002, and 2001, respectively $ 695,620 $ 342,738 $ 9,371
Interest income and other transactions due to timing
differences resulting from different fiscal year
ends for tax purposes v. financial reporting purposes 1,173 5,676 (298)
Fees to related party deductible to the extent
paid under Internal Revenue Code Section 267 -- -- (5,000)
----------- ----------- -----------
696,793 348,414 4,073
Financial statement to tax return difference arising from
investments in Operating Partnerships:
Adjustment due to non-allocation of loss in
excess of limited partners investment 104,995 435,822 39,754
Fees to related parties not deductible under
Internal Revenue Code Section 267 93,441 71,197 (169,458)
Municipal bond interest (15,789) (17,659) --
Excess of depreciation expense of the operating
partnerships for income tax purposes over
financial reporting purposes (1,156,812) (1,125,700) (1,167,704)
----------- ----------- -----------
Tax return net loss for the years ended
December 31, 2002, 2001 and 2000, respectively $ (277,372) $ (287,926) $(1,293,335)
=========== =========== ===========
F-13
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2003, 2002, AND 2001
7. PRIOR PERIOD ADJUSTMENTS
The Partnership is contractually liable for amounts that were partially
omitted from prior years' financial statements for Investor Services Fees
payable to an affiliate of the General Partner. The adjustment is $11,001
for 2002, $9,671 for 2001 and $31,109 for the periods 1993 through 2000.
In addition, the Operating Partnerships are contractually liable for
amounts that were wholly or partially omitted from prior years' financial
statements for Investor Services Fees payable to an affiliate of the
General Partner and for accrued interest on loans payable to the Operating
General Partner. Partners' equity of the Partnership as of March 1, 2000
has been reduced by $120,945 for the restatement of such expenses through
February 28, 2000 and net equity in income of the Operating Partnerships
has been reduced by $315,347 and $47,856 for the years ending February 28,
2002 and 2001, respectively. Net income per unit of limited partnership
interest has been reduced by $404 and $71 for the years ended February 28,
2002 and 2001, respectively.
7. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of results of operations for each of the four
quarters for the years indicated.
First Second Third Fourth
2003 ( restated ) Quarter Quarter Quarter Quarter
- ----------------- ------- ------- ------- -------
Total revenue $ 643 $ 612 $ 507 $ 353
Net earnings (loss) 479,289 218,548 234,367 (236,584)
2002 ( restated)
- ----------------
Total revenue $ 1,771 $ 1,373 $ 944 $ 580
Net earnings (loss) 28,903 (131,013) 329,258 115,590
2001 ( restated)
- ----------------
Total revenue $ 3,499 $ 3,430 $ 2,138 $ 2,823
Earnings (loss) before extraordinary item 47,587 (440,347) (155,240) 673,313
Net earnings (loss) 47,587 (556,289) (155,240) 673,313
F-14
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
AND INDEPENDENT AUDITORS' REPORT
F-15
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 2002, 2001 and 2000
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-17
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets F-18
Combined statements of operations F-19
Combined statements of partners' equity and
comprehensive income F-20
Combined statements of cash flows F-21
Notes to combined financial statements F-22 - F-26
F-16
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
Dixon Venture Corp.
Secaucus, New Jersey
and
Partners
Wilder Richman Historic Properties II, LP
Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills
Associates as of December 31, 2002 and 2001, and the related statements of
operations, partners' equity and cash flows for the years ended December 31,
2002, 2001 and 2000. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dixon Mills Associates as of
December 31, 2002 and 2001, and the results of its operations, changes in
partners' equity and cash flows for the years ended December 31, 2002, 2001 and
2000 in conformity with accounting principles generally accepted in the United
States of America.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
January 28, 2003
New York, New York
F-17
DIXON MILLS ASSOCIATES
COMBINED BALANCE SHEETS
December 31,
--------------------------------
A S S E T S 2002 2001
----------- ------------ -----------
(Restated)
LAND (Notes 2 and 5) $ 1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $18,240,199 and $16,721,225 in 2002 and 2001,
respectively) (Notes 2 and 5) 36,723,151 37,687,449
INVESTMENTS IN BONDS (Note 6) 1,348,817
CASH AND CASH EQUIVALENTS (Note 2) 7,176,990 2,018,814
DEFERRED COSTS (Notes 2 and 5) 816,739 846,439
MORTGAGE ESCROW DEPOSITS (Note 5) 1,698,200 3,126,650
TENANT SECURITY DEPOSITS 790,510 870,216
OTHER ASSETS 16,495 146,898
------------ ------------
$ 48,372,558 $ 47,195,756
============ ============
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Mortgages payable (Note 5) $ 28,600,000 $ 28,600,000
Accounts payable and accrued expenses 261,050 77,031
Accrued interest payable (Note 5) 13,776 14,902
Tenants' security deposits payable 790,510 870,216
Due to general partner and affiliates (Note 4 and 9) 1,644,420 1,569,742
------------ ------------
31,309,756 31,131,891
------------ ------------
PARTNERS' EQUITY (Note 3 and 9):
Partners' equity 17,062,802 16,096,363
Accumulated other comprehensive loss (32,498)
------------ ------------
17,062,802 16,063,865
------------ ------------
$ 48,372,558 $ 47,195,756
============ ============
See notes to combined financial statements
F-18
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
Year ended
December 31,
-------------------------------------------------
2002 2001 2000
----------- ----------- -----------
(Restated) (Restated)
Revenues:
Rent $ 7,187,352 $ 7,423,632 $ 7,043,881
Interest 52,049 95,850 98,318
----------- ----------- -----------
7,239,401 7,519,482 7,142,199
----------- ----------- -----------
Expenses:
Administrative (Note 7) 1,327,299 1,520,163 1,145,605
Operating 2,676,074 2,581,957 2,472,392
Management fees (Note 4) 297,684 280,389 261,828
Interest (Note 5) 423,231 782,202 1,315,625
Depreciation and amortization 1,548,674 1,524,025 1,420,236
----------- ----------- -----------
6,272,962 6,688,736 6,615,686
----------- ----------- -----------
Income before extraordinary item 966,439 830,746 526,513
Extraordinary item:
Write-off of unamortized deferred costs (Notes 5 and 8) -- -- (449,912)
----------- ----------- -----------
NET INCOME $ 966,439 $ 830,746 $ 76,601
=========== =========== ===========
Income before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 851,780 $ 386,617 $ 152,023
Extraordinary item (Note 8) -- -- (115,942)
----------- ----------- -----------
Net income allocated to Wilder Richman Historic
Properties II, L.P. $ 851,780 $ 386,617 $ 36,081
=========== =========== ===========
Income before extraordinary item allocated to
Dixon Venture Corp. $ 114,659 $ 444,129 $ 374,490
Extraordinary item -- -- (333,970)
----------- ----------- -----------
Net income allocated to Dixon Venture Corp. $ 114,659 $ 444,129 $ 40,520
=========== =========== ===========
See notes to combined financial statements
F-19
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF PARTNERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
Limited General
Total partner partner
------------ ------------ ------------
Partners' equity, January 1, 2000
as previously reported $ 15,594,366 $ 1,321,566 $ 14,272,800
Prior period adjustment (Note 9) (405,350) (120,945) (284,405)
------------ ------------ ------------
Partners' equity, January 1, 2000 (Restated) 15,189,016 1,200,621 13,988,395
Net income, year ended December 31, 2000 (Restated) 76,601 36,081 40,520
------------ ------------ ------------
Partners' equity, December 31, 2000 (Restated) 15,265,617 1,236,702 14,028,915
Net income, year ended December 31, 2001 (Restated) 830,746 386,617 444,129
Unrealized loss on marketable securities (Restated) (32,498) (32,498)
------------ ------------ ------------
Comprehensive income, year ended December 31, 2001
(Restated) 798,248 386,617 411,631
------------ ------------ ------------
Partners' equity, December 31, 2001 (Restated) 16,063,865 1,623,319 14,440,546
Reversal of unrealized loss on marketable securities, sold
In 2002 32,498 32,498
Net income, year ended December 31, 2002 966,439 851,780 114,659
------------ ------------ ------------
Partners equity, December 31, 2002 $ 17,062,802 $ 2,475,099 $ 14,587,703
============ ============ ============
See notes to combined financial statements
F-20
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------------
2002 2001 2000
------------ ------------ ------------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 966,439 $ 830,746 $ 76,601
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,548,674 1,524,025 1,420,236
Write-off of unamortized deferred costs - (extraordinary) -- -- 449,912
Change in assets:
Decrease (increase) in mortgage escrow deposits 1,795,727 45,162 (34,210)
Decrease (increase) in tenant security deposits 79,706 (18,202) (62,186)
Decrease (increase) in other assets 130,403 (54,526) (15,685)
Change in liabilities:
Increase (decrease) in accounts payable and accrued expenses 184,019 (122,904) 40,928
Decrease in accrued interest payable (1,126) (30,138) (87,258)
(Decrease) increase in tenants security deposits (79,706) 18,202 62,186
Increase (decrease) in due to general partner and affiliates 74,678 91,570 (211,702)
------------ ------------ ------------
Total adjustments 3,732,375 1,453,189 1,562,221
------------ ------------ ------------
Net cash provided by operating activities 4,698,814 2,283,935 1,638,822
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (554,676) (507,809) (855,822)
Proceeds (purchase) of investments 1,381,315 (1,381,315) --
------------ ------------ ------------
Net cash provided by (used in) investing activities 826,639 (1,889,124) (855,822)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages payable -- -- (26,249,814)
Proceeds of mortgage financing -- -- 28,600,000
Payments to principal reserve fund (367,227) (335,903) (182,499)
Deposits into mortgage escrow accounts at closing -- -- (1,438,058)
Payment of deferred costs -- -- (890,989)
------------ ------------ ------------
Net cash used in financing activities (367,277) (335,903) (161,360)
------------ ------------ ------------
INCREASE IN CASH 5,158,176 58,908 621,640
CASH AND CASH EQUIVALENTS, beginning of year 2,018,814 1,959,906 1,338,266
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 7,176,990 $ 2,018,814 $ 1,959,906
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 380,198 $ 753,773 $ 1,335,645
============ ============ ============
See notes to combined financial statements
F-21
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
1. COMBINATION AND ORGANIZATION
The combined financial statements include the accounts of Dixon Mill
Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill
Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill
Associates III, (Phase Three), Limited Partnership ("DM III") after
elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are collectively known as "Dixon Mills Associates" or
the "Operating Partnerships", each of which owns one phase of an
aggregate 433 units of residential apartments located in Jersey City, New
Jersey, that consist of buildings that are designated as "certified
historic structures" by the U.S. Department of the Interior. The
Operating Partnerships have constructed, rehabilitated, and own and
operate the complex. In accordance with the tax exempt financing of the
complex, the Operating Partnerships are required to rent 15% to 20% of
the apartment units to individuals of low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99%
limited partnership interests to Wilder Richman Historic Properties II,
L.P. (the "Limited Partner") in connection with that limited
partnership's public offering. The remaining 1% interest remained with
the Operating General Partner, Dixon Venture Corp. ("DVC").
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Operating Partnerships are prepared on
the accrual basis of accounting and include only those assets,
liabilities and results of operations related to the business of the
Operating Partnerships.
Combined financial statements are presented as the Operating Partnerships
are under common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value,
("NRV"). NRV is the net cash flow necessary to recover costs exclusive of
debt service. Depreciation on buildings is computed on the straight-line
method. The depreciable lives assigned is 40 years for the real property.
Income taxes
No provisions have been made for federal, state and local income taxes,
as they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25%
historic rehabilitation tax credit on eligible costs as a reduction of
their tax liabilities. In addition, the tax basis of the property has
been reduced by one-half of the historic rehabilitation tax credit for
income tax purposes only.
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships
consider all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents
are recorded at cost, which approximates fair value.
F-22
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of credit risk
Financial instruments which potentially subject the Operating
Partnerships to concentrations of credit risk consist principally of
temporary cash investments in high credit quality financial institutions.
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages
(Note 5) and are being amortized over the term of the mortgages using the
straight line method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recently issued accounting standards
During 2002 the financial accounting standards board ("FASB") issued the
following statements:
FASB 145 - Recission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections.
FASB 146 - Accounting for Costs Associated with Exit or Disposal
Activities.
FASB 147 - Acquisitions of Certain Financial Institutions - an
amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9.
FASB 148 - Accounting for Stock-Based Compensation - Transition
and Disclosure - an amendment of FASB Statement No. 123.
These statements do not have any impact on the Operating Partnerships'
financial position or results of operations.
3. PARTNERS' EQUITY
In accordance with the Partnership agreement, income and losses are to be
allocated 1% and 99% to the Operating General Partner and the Limited
Partner, respectively. Losses are not allocable to the Limited Partner if
the losses reduce its equity basis below zero. Losses in excess of the
Limited Partner's investment are allocated to the Operating General
Partner.
Accordingly, the Operating Partnerships did not allocate 99% of the
income reported in 2002, 2001 and 2000 to the Limited Partner due to the
non-allocation of previous years' losses in excess of the Limited
Partner's investment .
Distributions
The partnership agreements of the Operating Partnerships provide that
cash flow from operations will be distributed 99% to the Limited Partner
and 1% to the Operating General Partner until the Limited Partner has
received a 7% preferred return (the "Preference Amount") on their initial
capital contributions. The balance, if any, would be distributed 75% to
the Limited Partner and 25% to the Operating General Partner. Any
cumulative shortfall not recovered out of subsequent cash flow
distributions will be payable from sale or refinancing proceeds, to the
extent available. The cumulative preferred amount due to the Limited
Partner at December 31, 2002 is $16,266,336. There is no assurance that
all or a portion of such amount will be paid, and no amount has been
accrued.
F-23
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
3. PARTNERS' EQUITY (CONTINUED)
Net cash proceeds resulting from a sale or refinancing, to the extent
available (after the discharge of debts and obligations of the
Partnership, including outstanding loans from partners or affiliates),
will be distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General
Partner, until the Limited Partner has received an amount equal to
its adjusted contributions.
- 99% to the Limited Partner and 1% to the Operating General
Partner, until the Limited Partner has received an amount equal to
the unpaid cumulative Preference Amount.
- The balance of adjusted capital contributions of the General
Partner.
- The balance, if any, 75% to the Limited Partner and 25% to the
Operating General Partner.
4. RELATED PARTY TRANSACTIONS
DVC has complete authority, management and control of the Operating
Partnerships. The Operating Partnerships, in the normal course of
business, have transactions with the Operating General Partner and
affiliates. Included in the balance sheets are the following items:
Due to (from):
2002 2001
------------ -----------
(Restated)
Morris Realty $ (5,259) $ (5,259)
DVC 1,418,816 1,374,658
Richman Asset Management, Inc. 230,863 200,343
------------ -----------
$ 1,644,420 $ 1,569,742
============ ===========
The Operating Partnerships incurred annual property management fees to
Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited
Partner, in the amount of $119,074 in 2002, $118,488 in 2001 and $107,353
in 2000. WRMC received payments of $119,074 and $118,488 in 2002 and
2001, respectively. In addition, property management fees of $178,610,
161,901and $154,475 were incurred in 2002, 2001 and 2000, respectively to
Morris Property Management, an affiliate of the Operating General
Partner. Morris Property Management received payments of $178,610 and
$161,901 in 2002 and 2001, respectively.
Pursuant to the terms of Limited Partnership Agreements, the Operating
Partnerships have engaged an affiliate of the Limited Partner to provide
investor services at a fee of $45,000 in 1992 and is subject to
adjustment annually thereafter based on changes in the Operating
Partnerships' rental revenue. The Operating Partnerships incurred
investor services fees of $75,520, $78,003 and $74,013 to Richman Asset
Management, Inc., an affiliate of the Limited Partner in 2002, 2001 and
2000, respectively, and paid Richman Asset Management, Inc. $45,000 in
2002 and 2001.
Pursuant to the terms of the Limited Partnership Agreements, the
Operating General Partner is entitled to interest on Operating Deficit
Loans and voluntary loans made subsequent to the issuance of the Fannie
Mae pass-through certificates (which occurred in February 1991) (see Note
5). Interest on such advances accrues at 1% above the JP Morgan Chase
prime rate. The Operating Partnerships incurred interest of $44,158,
$58,567 and $67,238 for 2002, 2001 and 2000, respectively. Amounts
payable to the Operating General Partner were $1,418,816 (inclusive of
accrued interest of $481,986) and $1,374,658 (inclusive of accrued
interest of $437,828) as of December 31 2002 and 2001, respectively.
F-24
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
5. MORTGAGES PAYABLE
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage
financing for the Operating Partnerships through the issuance of
tax-exempt Bonds (the "Bonds") guaranteed and secured by the Federal
National Mortgage Association ("FNMA") mortgage pass-through certificate
("FNMA Certificate"). The FNMA Certificate in turn was secured by
mortgages given by the Operating Partnerships in the amount of
$27,545,000.
The Operating Partnerships refinanced their respective outstanding
mortgage liabilities under the $27,545,000 Jersey City Redevelopment
Agency Multifamily Housing Revenue Bonds, Series 1992 (Fannie Mae
pass-through Certificate Program/Dixon Mill Apartments Project as of
April 28, 2000). The total new indebtedness in the amount of $28,600,000
is for a term of 30 years and was provided by (a) variable-rate
tax-exempt bonds in the amount of $26,435,000 maturing on May 15, 2030
and (b) variable-rate taxable bonds in the amount of $2,165,000 maturing
on November 15, 2005 which are secured by the property. The Operating
Partnerships have purchased an interest rate cap which would limit the
interest rates to 6.97% for five years on the tax-exempt portion, and
9.15% for five and one-half years on the taxable portion.
The mortgage proceeds retired the old mortgage of $26,154,723, funded
reserves for capital improvements in the amount of $1,173,000 and covered
the costs of the transaction in the amount of $890,989, which is
reflected as deferred costs, net of accumulated amortization, in the
accompanying balance sheets. The capital improvements escrow was
established from the mortgage proceeds and the replacement reserve in the
combined amount of approximately $2,076,000 to pay for significant
planned improvements (roof replacement, smoke/fire alarm systems,
elevator repairs and other repairs throughout the complex).
The Operating Partnerships make monthly payments into a principal reserve
fund or the purpose of providing funds for retirement of the bonds issued
by the Agency. The bonds will be retired from funds in the reserve fund
at which time the mortgage balance will be reduced accordingly. At
December 31, 2002 the scheduled principal reserve fund payments are as
follows:
2003 $ 401,620
2004 439,174
2005 473,018
2006 429,334
2007 460,016
Thereafter 25,511,159
-------------
$ 27,714,321
============
The mortgage terms require monthly payments of $6,326 to the
replacement reserve.
Restricted funds held in deposit in connection with the mortgage
are as follows:
2002 2001
------------ ------------
Principal reserve fund$ 885,679 $ 518,402
Capital improvements escrow 223,345 2,142,466
Replacement reserve 180,922 122,443
Tax and insurance escrow 330,712 294,875
Other deposits 77,542 48,464
------------ ------------
$ 1,698,200 $ 3,126,650
============ ===========
F-25
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
6. INVESTMENT IN BONDS
The Operating Partnerships carries its investments in bonds at December
31, 2001 as available-for-sale because such investments are used to
facilitate and provide flexibility for its obligations. Investments in
bonds are reflected in the accompanying balance sheets at estimated fair
value.
All bonds were sold during the year ended December 31, 2002.
7. LITIGATION
Three complaints had been filed in a prior year against the Operating
Partnerships and others, by a former employee, a former part-time rental
agent, and a security person employed by a private non-affiliated
security company which provided service to the properties, alleging
discrimination in connection with advancement, hiring and termination.
All three complaints were settled in 2001 for a total for $150,000. Total
legal expense incurred by the Operating Partnerships in 2001 was
approximately $412,000 which includes the $150,000 settlement and is
included in administrative expenses in the combined statements of
operations.
8. EXTRAORDINARY ITEMS
Write-off of Deferred Costs - 2000
As a result of the refinancing in 2000, deferred costs of $449,912
reflected on the Operating Partnerships' balance sheet as of December 31,
1999 were written off in the year ended December 31, 2000 and are shown
as an extraordinary item on the combined statement of operations.
9. PRIOR PERIOD ADJUSTMENTS
The Operating Partnerships are contractually liable for amounts that were
wholly or partially omitted from prior years' financial statements for
investor services fees payable to an affiliate of the Limited Partner and
for accrued interest on loans payable to the Operating General Partner.
The adjustment for investor services fees is $33,003 for 2001, $29,013
for 2000 and $93,327 for the periods 1993 through 1999. The adjustment
for interest on loans payable to the Operating General Partner is $58,567
for 2001, $67,238 for 2000 and 312,023 for the periods 1992 through 1999.
Partners' equity as of January 1, 2000 has been reduced for the
restatement of such expenses through December 31, 1999.
F-26